Which of the following takes place when a tax is placed a good ?
Correct answer: D. an increase in the price buyers pay a decrease in the price sellers receive and a decrease in the quantity sold
- A. a decrease in the price buyers pay, an increase in the price sellers receive, and a decrease in the quantity sold
- B. an increase in the price buyers pay a decrease in the price sellers receive, and an increase in the quantity sold
- C. a decrease in the price buyers pay, an increase in the price sellers receive and an increase in the quantity sold
- D. an increase in the price buyers pay a decrease in the price sellers receive and a decrease in the quantity sold
Explanation
A tax creates a wedge between the price buyers pay and the lower net price sellers receive, while reducing the quantity traded. Therefore buyers pay more, sellers receive less, and quantity sold decreases.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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